• Alex Pettee, CFA

Cool Inflation • REIT Earnings • Housing Dividend Boost

Summary

  • U.S. equity markets finished mostly higher Wednesday with the Dow eclipsing fresh record-highs after cooler-than-expected CPI data curbed inflation concerns ahead of another round of fiscal stimulus.

  • Following gains of 1.4% yesterday, the S&P 500 finished higher by 0.6% while the tech-heavy Nasdaq 100 finished lower by 0.4% following yesterday's strong rally.

  • Real estate equities were broadly higher today led by timber and retail REITs as the broad-based Equity REIT ETFs finished higher by 1.0% with 15-of-19 property sectors in positive territory.

  • Core Consumer Prices rose less-than-expected in February, pulling the annual increase down to 1.28%. The "headline" CPI index, however, recorded a 0.4% increase in January as gasoline and fuel prices jumped from last month.

  • Homebuilders and the broader Hoya Capital Housing Index delivered a strong day, led by a 5% jump from Toll Brothers (TOL), which boosted its dividend by 55% yesterday afternoon.

Real Estate Daily Recap

U.S. equity markets finished mostly higher Wednesday with the Dow eclipsing fresh record-highs after cooler-than-expected CPI data curbed inflation concerns ahead of another round of fiscal stimulus. Following gains of 1.4% yesterday, the S&P 500 ETF (SPY) finished higher by 0.6% while the tech-heavy Nasdaq 100 (QQQ) finished lower by 0.4% following yesterday's strong rally. Real estate equities were broadly higher today led by timber and retail REITs as the broad-based Equity REIT ETFs (VNQ) finished higher by 1.0% with 15-of-19 property sectors in positive territory while the Mortgage REIT ETFs (REM) gained 1.6%.

The back-and-forth action associated with the "reopening trade" continued today as ten of the eleven GICS equity sectors finished in positive territory today, led by the economically-sensitive Energy (XLE), Financials (XLF), and Materials (XLB) sectors. Departing from recent correlations, however, these economically-sectors rallied despite a pull-back in the 10-Year Treasury Yield (IEF) which declined 3 basis points following cooler-than-expected inflation data this morning. Homebuilders and the broader Hoya Capital Housing Index delivered a strong day, led by a 5% jump from Toll Brothers (TOL), which boosted its dividend by 55% yesterday afternoon.

All eyes are on inflation data as investors remain skittish about a potential "overheating" U.S. economy from COVID-related fiscal stimulus measures and the implications for interest rates, inflation, and equity valuations. Inflation expectations - and long-term interest rates - jumped to mid-pandemic highs earlier this month, but pulled back today after the BLS reported this morning that the Core Consumer Price Index was cooler-than-expected with just a 0.1% in February, pulling the annual increase down to 1.28%. The "headline" CPI index recorded a 0.4% increase in January, however, as gasoline and fuel prices jumped from last month, but the headline CPI Index is still higher by just 1.67% over the past year.

Commercial Equity REITs

Shopping Centers: Retail Value (RVI) finished higher by nearly 3% today after reporting results this morning - the final shopping center REIT to report Q4 earnings. RVI - a small-cap REIT which owns a portfolio split between Puerto Rico and the U.S. - reported the most significant year-over-year decline in FFO per share at -38%, which was attributable to the impact of the COVID-19 pandemic and asset sales. Shopping center REITs - which were not hit nearly as hard as their enclosed mall peers - reported an average full-year FFO/share decline of 19% in 2020, and 2021 guidance calls for a muted positive inflection in 2021. We'll publish our quarterly update on the Shopping Center REIT sector later this evening on The REIT Forum.

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Disclosure: A complete list of holdings and Real Estate and Housing Index definitions and holdings are available at HoyaCapital.com. Hoya Capital Real Estate advises an Exchange Traded Fund listed on the NYSE. Hoya Capital is long all components in the Hoya Capital Housing 100 Index.

Additional Disclosure: It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Data quoted represents past performance, which is no guarantee of future results. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy.

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